50% rule varies greatly based on down payment?

[Matt Hooper]

Hi Everyone.  Great info on here and thank you all for your contributions.  I'm a newbie and greatly appreciate all the feedback.

In evaluating the 50% rule it appears to me that the math seems to change greatly based on how much money is put down. The IRR goes way up as the down payment % goes down, obviously, since you have lower upfront investment, but since the mortgage payment goes up with less money down, the 50% rule says there is less "profit" per unit and the deal doesn't look as good. Am I looking at this correctly? Does the 50% rule need to always assume the same down payment or at least a narrow range (20-30%) for it to be a sensible metric? Ultimately isn't it all about IRR when comparing investment alternatives?

Thanks again for any and all feedback.

[Christopher Phillips]

@Matt Hooper

50% rule is just operating expenses (utilities, vacancy, repairs, CapEx). Doesn't include mortgage/debt service.

cash flow = Rent income less operating expenses less debt service

50% rule is a just a back of the envelop calculation for screening prospects. Eventually, you have to get better estimates or actual numbers to make a decision.